No need to beat around the bush here: Ron Suskind’s “Confidence Men” is a terrible book. It’s not even remotely accurate, and contains surprisingly little new, original information.

The fundamental problem is that Suskind is stunningly ignorant of basic macroeconomics, financial markets, the financial crisis, and financial regulations — basically, all the subjects you’d need to understand in order to write a competent book about the Obama administration’s economic team. It also contains so many patently absurd, completely unsourced assertions that it’s really not a question of whether Suskind makes up some of his material, but rather how much of his material is made up.

Curiously, the articles slamming Suskind’s book almost all cite a series of minor errors (e.g., saying Tim Geithner was the “chairman” of the NY Fed rather than the “president”) in order to demonstrate Suskind’s incompetence. The book is riddled with much more major errors — errors which provide the foundation for his cooked-up narrative. To give you a flavor of what I’m talking about, here are a few representative examples.

Suskind’s Ignorance of Basic Macroeconomics/Monetary Policy

On page 22, Suskind claims that the idea of making interest rate cuts the primary tool of monetary policy was “an innovation of previous Fed chairman Alan Greenspan.” Yep, no central banker had ever thought to make interest rate cuts their primary policy tool before Greenspan. It gets worse though. Suskind then claims that Fed interest rate cuts only stimulate the economy because they “prompt everyone, everywhere, to roll over debts of all kinds by replacing whatever is on their balance sheet with its equivalent.” That’s it. Interest rates are cut, everyone refinances all their loans, and that’s it. No new loans being made, no inflation, nothing. This is what he thinks monetary policy is (and he repeats this several more times in the book, so it’s clearly how he thinks monetary policy works). This is not some trivial detail, either — how can Suskind be expected to understand the decisions that were being made if he can’t even understand how the Fed works on the most basic level?

Suskind’s Ignorance of the Repo Market

On pages 72–73, Suskind’s complete ignorance of the repo market causes him to badly misinterpret something Tim Geithner said to him — an interpretation which he then uses to further his very unflattering portrait of Geithner.

First of all, Suskind simply asserts, without any sourcing at all, that in August 2007, Geithner had only a “passing familiarity” with the repo market. The idea that the president of the NY Fed had only a “passing familiarity” with repos is absurd on its face. One of the NY Fed’s primary functions is implementing monetary policy, and one of the main ways it does this is by entering into — you guessed it! — repos. Did someone tell Suskind that Geithner only had a “passing familiarity” with repos? Clearly not, or else he would have sourced it, even anonymously. No, it’s clear that Suskind simply made it up in order to further his fictitious unflattering portrait of Geithner.

Ironically, Suskind then proceeds to demonstrate his own ignorance of the repo market, in a discussion of Countrywide’s difficulties securing repo financing in August 2007. From the book (emphasis on the comically wrong parts added):

“That was really interesting,” Geithner later reflected, “because Countrywide had no idea what its exposure was, no understanding of what it had gotten into. And the fact that the market was unwilling to fund Treasuries if Countrywide was a counterparty was the best example of how fragile confidence was and how quickly it turned.”

Translation: the market would not even lend Countrywide cash to buy Treasury bonds, the safest investment in the firmament. CDOs, MBSs, or similar types of mortgage-based collateral that Countrywide was using to roll over its repo loans were suddenly seen as impossible to value or sell in August 2007, meaning that it was illiquid. The whole point of collateral is that it can be taken — the way the repo man repossesses your car after too many missed payments — and sold in liquid markets for cash. Collateral that is illiquid is no collateral at all. Countrywide’s intended use for the borrowed funds — to go out, like Sal Naro, and buy Treasuries and shore up its balance sheet or to use them as collateral for emergency bank loans — was irrelevant. Its collateral was no good.

Geithner, at the time and looking back, saw this strictly in terms of confidence.

No, no, a thousand times no! Suskind completely misinterpreted what Geithner was saying. Countrywide wasn’t trying to use CDOs and MBSs to fund its repo book — it was trying to use Treasuries as collateral on repos, and counterparties were still refusing to roll over Countrywide’s repos. That’s why Geithner said it was “really interesting” — because market participants had become so scared of counterparty risk that they wouldn’t even lend against Treasuries (which in theory shouldn’t happen). Suskind evidently doesn’t know that Countrywide originated the subprime mortgages that went into the MBSs and CBOs; it wasn’t the end investor in the CDOs. But Suskind uses his horrible misinterpretation to paint Geithner as naïve and in denial about the depth of the problems in subprime MBSs and CDOs. (“Silly Geithner, he thought it was just a confidence problem!”) There’s a mistake like this on practically every page of the book (his misinterpretation of a memo by UBS’s Robert Wolf is classic in its utter wrongness too), and it all contributes to a narrative that, at the end of the day, is simply false.

Suskind’s Ignorance of the Difference Between Creditors and Equity Holders

Finally, in the chapter on Geithner’s alleged refusal to resolve Citigroup (which very clearly never happened) Suskind writes:

Geithner, on this point, would not budge. Debt was sacrosanct. No creditor would suffer. Bair was equally intransigent. Secured creditors, such as equity holders, of course, wouldn’t be wiped out, but they had to face consequences for lending money to an institution whose recklessness had led to its demise. They must, she said, “face some discipline.”

Yes, you read that right: Suskind does not know the difference between secured creditors and equity holders. He apparently thinks that in a resolution of Citi, equity holders “wouldn’t be wiped out” (“of course,” he says). Again, this is not a trivial mistake — this is enormously important, because the entire debate over what to do with Citi revolved around the distinction between creditors and equity holders. The FDIC was (allegedly) advocating putting Citi’s commercial bank subsidiary into receivership, which would haircut creditors, whereas Geithner was advocating the stress tests, which in a worst-case scenario would lead to the government diluting equity holders, but not haircutting creditors.

This demonstrates quite clearly that Suskind lacked the knowledge or ability to understand the central dispute in his own book — the dispute that made headlines all over the country. How can Suskind be expected to understand what happened in this dispute if he couldn’t even understand what the dispute was about in the first place?

The answer, obviously, is that Suskind’s account of the dispute is not credible. (Bolstering that conclusion is the fact that the meeting in which Obama allegedly ordered the resolution of Citi has been reported on several times before, and every other journalist reported that Obama decided against resolving Citi.)

Anyone who is even remotely familiar with the financial crisis, or financial markets in general, would be able to catch 90% of Suskind’s mistakes/fabrications, so I don’t know how anyone who knows this material could possibly consider Suskind’s book credible. His account of the financial reform debate was, if possible, even more riddled with fundamental misunderstandings and mistakes, which renders his telling largely false. I was as close to the financial reform debate as anyone, and Suskind’s account is simply not what happened.

In any event, don’t waste your money.

18
comments:

Do you agree with Weisberg's assertion that Suskind is simply not credible at all and never was in the first place? The same people that seemed supportive of him back when The Price of Loyality came out are bashing him now, and whatever issues that and other works by him about the Bush administration might have had, there are plenty of other events to back up the impressions left by that book. Is this anything other than a case of a broken clock being right twice a day?

On an unrelated note, any thoughts about the Solyndra "scandal"? I use "scandal" in quotation marks because it's not clear this was anything other than a case of stupidity and poor judgement. If that's the case, it's hardly a rousing defense, but it doesn't mean anything unethical let alone illegal was done. I'd also be curious to hear your thoughts, if you have any, on the role of government in such loans.

oooh this whole time I thought the Con Men title was a meta joke of how he was conning you into buying his crappy book...

Anon at 7:28 I have found that there are a wide range of commentors who are well educated on Finance that read this blog... but unfortunately your question about financial reform is too vague even for an entire blog to focus on.

Further to Brian J's comment, nobody who has ever claimed to be part of the "Reality-Based Community" (a phrased from a quotation that is similarly clearly a Suskind fakery) has any standing to complain about Suskind's fakery in this book. Anyone with even a passing knowledge of what actually happened during the Bush Administration (I realize that this omits most of those who used the phrase "Reality-Based Community") knew that Suskind's prior books were complete fakes and thus were forewarned about this fake. For those people, what goes around comes around.

(Nb, I'm not claiming that this blog's author is one of those people. Just noting the schadenfreude.)

Like I said, perhaps whatever was accurate in The Price of Loyalty was nothing more than a case of a broken clock being right twice a day. It's been a while since I've read and thought about that book, but nothing that has happened before it after its release has convinced me (or anyone else, I bet) that the previous administration was anything but shady and incompetent at best. In other words, it makes sense that people were tricked, to whatever extent they were in fact tricked, because Suskind's book seemed like more of the same. Whatever your problems with Obama (aside from sharp and perhaps irreconcilable ideological differences), nobody credible is arguing that it's hopelessly inept and corrupt.

You have convinced me that it is a poor book but, if I may, a couple of criticisms of your critique.

(1) I know that it is hard for Anglo Saxons to remember, but interest rate CUTS are not supposed to be the primary monetary policy tool. It would be better to say "changes"; in theory at least, the Fed might want to raise interest rates one day!

(2) Although I am sure that Geithner knows about repo now, I could believe that his understanding was hazy in August 2007. First, at that time, policymakers tended to regard monetary policy implementation as something that they could leave to the technicians, like a driver leaves fixing his car to a mechanic. Second, before the financial crisis, compared with other central banks the Fed used relatively little repo, for fine tuning purposes only, with treasuries across the curve acquired by coupon passes providing the mainstay of the Fed's monetary assets (which I contend contributed to the financial crisis: http://reservedplace.blogspot.com/2008/01/us-economic-policy-shot-in-foot-1-soma.html ). In fact, even the Fed's own terminology for repos is somewhat confusing, with Fed lending described by them as "repo", and Fed borrowing described now as "reverse repo" and formerly as "matched sales-purchases".

Your criticism is well taken. However, it does not take away from the broader fact that the book highlights - that the fight to right the country's economic mess was lost the day Summers, Geithner, Bernanke et al were hired (or re hired) instead of the A-team (Volcker et al). People who are in power when the problem festers or worse cause the problem - Geithner Bernanke or are sympathetic to the insiders (banks) will not solve the problem. And that is exactly what we got. INstead of cleaning house, Obama got a bunch of insiders or megalomaniacs who refuse to see the true underlying causes of the problem and hence are applying band aid after band instead of implementing real solutions. This needs to be said.

Suskind has a long history of questionable journalism - he claims stuff is on tape but never plays it. Remember when he claimed he had been arrested by the Secret Service before his last book came out?

From everything I have heard that interview was a complete and utter fake and the guy is a paid actor who is not a trader. There is no way to verify this of course but its one of those what makes more sense.

IF he was a trader, I can promise you he already boxed up his office and took everything home and will never work for another bank again.

You seem to be one of the people who believe that only financiers can understand finance. This would lead to only letting people who earn money from finance advise presidents on financial regulation/bailout. I'd trust Suskind more than you. Of course, he will make some errors, as he's not a specialist. But his errors do not lead him to large conceptual mistakes. He has got the larger concept (cutting back Wall Street's influence on the president is in the best interest of society) perfectly. God bless him.

Your comments about Suskind on Countrywide's repo problems are hard to square with the Fed's comments (quoted on p.249 of the Financial Crisis Inquiry Commission report): "The ability of the company to use [mortgage] securities as collateral in [repo transactions] is consequently uncertain in the current market environment"

First, I wonder if you were confused by what Suskind wrote about the Countrywide example? It was clear to me that his point was that Countrywide couldn't roll its repos even with treasuries as collateral.

But the most eye-opening truth to me in the book was that Obama traded in what seemed to have been a pre-election team focused on reregulation for a post-election team RESPONSIBLE FOR THE DISMANTLING OF GLASS-STEAGALL IN THE FIRST PLACE. I'll admit that Summers and Geithner weren't household names in my house, nor did I know much about the financial reform debate that took place, but everything I've read since the financial collapse tells me that most derivatives are nothing more than bets between people with no interest in the underlying securities, and that those kinds of transactions shouldn't take place on the same basis as buying and selling of equities. (Actually, I've know this since 2001 when I read my first mutual fund prospectus and voted against including derivatives in that fund, but never realized how much of the market had invested in them.) I had HOPED that the Obama administration would see this the same way, and enact laws to protect investors like me.

If nothing else, the book should be a wakeup call to small investors that they need to pay more attention and demand finanial reform. The financial markets are not a private poker game between Wall Street Math Whizzes - its where millions of Americans have been forced to save for retirement. Heaven forbid anyone has the bright idea to bet our Social Security accounts there too.

Also being a lawyer, with far deeper and broader experience than you, and being very pro Obama at the start of his administration, I could not disagree more with your take on Confidence Men.

Obama is a failed leader. Suskind does his best to explain way and offers very substantial insights into what happened.

Your critisims show, to me, incentive bias on your part. For example, you misstate entirely the point Suskind makes about repos to defend Geitner and Summers. Suskind wasn't writing about bank repos with other banks or the fed. Suskind was writing about repos by companies like GE.

Some of us saw these events coming. In the summer of 2008, Summers was running around pushing for a high job. I was writing to the Financial Times with the message don't let this guy within a mile of the White House and others were as well.

About Me

I'm a finance lawyer in New York. I used to focus on derivatives and structured finance (you know, back when there was a structured finance market). I spent the majority of my career at one of the major investment banks. My background is in economics and, unfortunately, politics.

Subscribe - RSS

Subscribe via email

Disclaimer

This site is intended for educational purposes only. The content on this site DOES NOT constitute, nor should it be construed as, specific legal advice. The opinions expressed on this site are the author's personal views, and may not represent the opinions of the author's employer(s), past or present. Your use of this site does not form the basis for an attorney-client relationship. Sending the author an email does not create an attorney-client relationship.

You should seek professional legal counsel authorized to practice law in your jurisdiction before acting on any information contained on this site. I expressly disclaim any and all liability of any kind or nature with respect to any act or omission based wholly or in part in reliance on anything contained on this site.